Platinum poised to grab the limelight

While bullion arguably takes up the majority of investors’ attention, platinum is by far the most valuable precious metal given that it is extremely rare, and it is very expensive to mine.

Platinum has a plethora of industrial and environmental uses. Its particular set of characteristics means that aside from its use in jewellery, it is used for LCD displays and fibre-optic cables, but most significantly platinum is heavily used in catalytic converters in motor vehicles to reduce toxic emissions such as carbon monoxide.

For its part silver, too, has a strong set of industrial uses, in addition to its huge popularity for jewellery. It is famed for being the best conductor of electricity of any metal, its anti-bacterial properties are used in the medical industry, and is still used in dentistry. In fact about 50 per cent of silver consumption is driven by industrial demand, compared with just 10 per cent for gold.

But the price of silver is still very much tied to the gold price, and in 2013 precious metals have not covered themselves in glory, with gold and silver down respectively by 22 and 29 per cent, while platinum has notably just shed 6 per cent of its value year-to-date to November 1, according to Johnson Matthey/Bullion Vault figures.

Gold has been the primary reason for holding back the price of silver, with correlations between the two metals hovering at multi-year highs. Typically, silver prices are closely linked to gold, but the correlation is now above 0.90, meaning 90 per cent of the price moves in silver can normally be explained by gold, according to ETF Securities.

But while the financial crisis saw millions of investors rush to find shelter in gold, which was already enjoying a prolonged bull-run, it has endured severe volatility during 2013 as the strengthening US dollar and overall global economy has seen more and more investors turn their back on the yellow metal.

All of this and more have helped drive platinum further back into the spotlight. F&C Investments’ co-head of multi-manager Gary Potter says: “There is very much an industrial platform for platinum, given its usage in the car industry. Taking into account the recovering global economy and potential future car sales, especially within emerging markets, this makes platinum more attractive than gold.”

Charles Stanley Direct’s head of investment research Ben Yearsley concurs that the industrial demand for platinum gives it an edge over gold. But he also points out that political tensions and problems associated with the mining of the metal can also cause price volatility.

The vast majority of platinum, at some 75 per cent, is mined in South Africa, which can often be burdened by issues such as union strikes and at times haphazard electricity supply to the mines.

Mr Yearsley adds: “While platinum is linked to the gold price, overall I am bullish on its long-term prospects given the huge industrial demand there.”

While tightening global emission standards have caused an upward shift in demand for platinum in catalytic convertors, what is less well documented, however, is that the largest single source of platinum demand over the past few years has been jewellery – specifically from China.

Mike McGlone, research director at ETF Securities, says: “Prior to the recession in Europe, European auto catalysts accounted for the single largest demand component for platinum. At the demand peaks in 2006 and 2007, European auto catalyst demand totalled just over 2m ounces annually, roughly double the demand from Chinese jewellery.”

In 2012, Chinese platinum jewellery demand subsequently jumped 16 per cent to just under 2m ounces, while European demand for auto catalysts declined to 1.3m ounces as the prolonged recession continued to bite.

But as Europe emerges from recession, asserts Mr McGlone, demand for platinum is likely to get a further boost as car sales increase. Meanwhile Chinese platinum jewellery demand in 2013 is on pace to be above 2.1m ounces in 2013, double the amount for 2000. Overall China is expected to account for nearly 80 per cent of total platinum jewellery demand in 2013.

Mr McGlone adds: “Based on our expectation of continued supply constraints in South Africa and improving economic conditions in China and Europe, we remain bullish about the platinum price.”

Philip Scott is a freelance journalist

PLATINUM

THE USES

 LCD displays

 Fibre-optic cables

 Catalytic converters in motor vehicles, fitted to reduce toxic emissions such as carbon monoxide

 Glassmaking equipment

 Anti-cancer drugs and in implants